Pre-money vs post-money valuation in startup funding

Raising capital is a big milestone for any startup, but many founders go into funding conversations without a clear picture of how valuation actually works.

If you don’t fully understand the difference between pre-money and post-money valuation, you could end up giving away more equity than you planned, losing control, or entering a deal with expectations that don’t align with your investors.

In this guide, we will walk through everything you need to know about pre-money vs post-money valuation in startup funding.

If you are looking to secure funding from international investors, we’ll also explain why opening a Wise Business account could be a great idea. With a Wise Business account, you can open a local account in major currencies to receive funding from investors abroad, as if you were a local business (only with Wise Business Advanced).

Get started with Wise Business ✍️

What is pre-money valuation?

Pre-money valuation is the estimated value of a startup before receiving any external funding or going public. This is a fundamental concept in venture capital and private equity because it provides you and your investors with a snapshot of your startup's current valuation before injecting capital. Pre-money valuation also helps investors determine the ownership stake they will receive.

As a startup founder, a pre-money valuation helps establish the proportion of ownership (equity) you will retain after a funding round. It also sets the stage for negotiations with potential investors.

Think of pre-money valuation as a snapshot of what your startup is worth. This valuation is based on multiple factors, including current assets, revenue, growth potential, and market position. A company's pre-money valuation is never static. It’s constantly changing, especially as your startup develops and grows. So keeping track of your startup's pre-money valuation helps you understand how its value is changing.

Note: when calculating pre-money valuation, note that it relates to the company's book value. This means it’s not based on the assets. It’s also not measured by your startup's acquisition price.

What is post-money valuation?

Post-money valuation is a startup’s estimated worth or equity value after receiving new investment capital or after a financing round. When your startup raises capital, the cash becomes part of your balance sheet, thereby increasing your equity.

Its valuation is calculated by adding the amount your startup raised in a funding round to your company’s pre-money valuation. This valuation metric plays an essential role in determining ownership after a funding round. It helps investors to assess the proportion of ownership they will receive. This valuation also allows you to see the percentage of your company that you will retain.

Overall, post-money valuation is instrumental to understanding how this new investment will affect your company’s value.

Calculating pre- and post-money valuations

Here is a quick walkthrough of how to calculate your startup’s pre-money and post-money valuations:

How to calculate pre-money valuation?

Here’s how to calculate pre-money valuation:

Pre-money valuation = Post-money valuation - Investment amount

Suppose your startup has a post-money valuation of £1.5 million after a £ 400,000 funding round.

Here’s how to calculate your pre-money valuation:

Pre-money valuation = Post-money valuation − Investment amount

Pre-money valuation = £1.5 million - £400,000 = £1.1 million.

This means that your startup's pre-money valuation is £1.1 million before a funding round.

How to calculate post-money valuation?

Here’s how to calculate your startup’s post-money valuation:

Post-money valuation = Pre-money valuation + Investment amount

Going by our previous Kent-based startup example, here’s what the calculation would look like:

• Pre-money valuation: £1.1 million
• Investment raised: £400,000

Post-money valuation= £1.1 million + £400,000 = £1.5 million

This shows that your startup is valued at £1.5 million after the funding round closes.

Factors Influencing Valuation

As a startup founder, there are several factors to consider when valuing your startup. They play a huge role in determining your startup’s value. Some of these factors include:

Internal factors

• Founding team and management: Investors need to know if your team can execute its vision. Therefore, having a team with a proven track record and industry expertise can inspire courage in investors. Startups with experienced leadership often receive higher valuations because they reduce the perceived risk for investors and increase the likelihood of long-term profitability.
• Financials: Your startup’s revenue, projected growth, and profitability also matter to investors. Consistent revenue growth indicates that your products or services are in demand. This reduces perceived risks for investors.
• Traction and customer base: Investors view traction as a strong indicator that the product or service resonates with real users and solves real-world problems. This reduces uncertainty about your company’s ability to scale and succeed in the long run, which, in turn, drives a higher valuation.
• Intellectual property: A startup with a product or service that has strong intellectual property creates a higher barrier to entry, making it harder for competitors to replicate. Investors value this because it reduces the likelihood of competitors, and the startup can maintain their pricing power and market share over time.

External Factors

• Funding stage: Startups in the early funding stages, such as pre-seed or seed, typically have lower valuations. At this stage, the business is still young and often lacks a proven track record, stable revenue, or clear market validation. On the other hand, startups in later stages tend to command higher valuations because they have demonstrated traction, built repeatable revenue streams, and reduced risk through execution and growth.
• Investor interest: Strong investor demand is another factor that can influence your startup’s valuation. When multiple investors are eager to participate in a funding round, it creates competition among them. This can, in turn, lead to a high pre-money valuation and bidding wars for equity and investment in your startup.
• Market conditions: Macroeconomic conditions directly affect capital availability and investors’ appetite for risk. During periods of inflation and rising interest rates, capital becomes more expensive, and investors grow more cautious. As a result, they tend to favour startups with sustainable cash flow, clear paths to profitability, and strong financial discipline, rather than early-stage companies focused primarily on rapid growth or long-term potential.

The Role of Negotiation in Setting Valuation

Negotiation plays a significant role in creating a mutually beneficial situation for you and your investor. This negotiation typically occurs when an investor sends you a term sheetoutlining key information about a potential investment.

As a startup founder, negotiating a term sheet helps you prioritise control over your company, maximise pre-money valuation, and minimise unnecessary dilution. Additionally, you can negotiate how much control you retain over strategic decisions on the board.

On the other hand, investors are more focused on risk protection. They want to negotiate liquidation preferences, anti-dilution protection, and downside safeguards to protect capital if the company underperforms.

Investors would also negotiate ownership percentage, board representation, information and voting rights, and how to ensure a viable exit.
Keep in mind that whatever terms you negotiate at the earliest stages (series A or unpriced rounds) will set a precedent for what future investors expect.

If you provide incentives that put your ownership at risk or give away too much leverage, they will compound with each investment round. So be careful to think of the ripple effects of your negotiations.

Why are pre- and post-money valuations crucial in startup funding?

In startup funding, pre- and post-money valuations shape everything from equity ownership to investor expectations and long-term outcomes.

Whether you’re a startup founder or an investor, here are some key reasons why these valuations matter:

Help in negotiating with investors

As a startup founder, knowing your pre-money valuation gives you a sense of your company's value before securing investor funds. It serves as a starting point for negotiation with investors.

Help in planning for future rounds

Pre-money and post-money valuation make it easy to track how a startup's value changes over time across different startup funding rounds. With this valuation, founders can accurately measure the progress of their startup over time.

Clarifies investor ownership

Post-money valuation shows the exact percentage of the company an investor owns after a funding round closes. This reduces the back-and-forth negotiations between founders and investors.

It builds investor confidence

When investors understand your pre- and post-money valuations, they are more confident that the company has been properly valued. It clearly shows how their investment translates into ownership and potential returns, which builds trust and makes the opportunity more attractive to backers.

Best practices for setting a fair valuation

Below are some best practices you should consider if you want to set a fair valuation:

• Use multiple valuation methods: Consider using multiple valuation methods, like discounted cash flow (DCF) and comparable company analysis. Each method has its flaws so combining them helps reduce bias from any single technique.
• Benchmark against comparables: Review recent transactions and valuations of comparable startups in your industry and adjust for factors such as stage, growth rate, and key metrics like revenue multiples. You should also consider your total addressable market (TAM), team strength, and traction to avoid over- or undervaluing the business.
• Think beyond valuation: While valuation is important, it’s only one part of the deal. You should also pay close attention to other terms, such as pool size, liquidation preferences, participation rights, and anti-dilution provisions.

Pre-money and post-money valuation help founders understand the real cost of raising capital. They help you understand your startup’s stage, traction, and investor expectations.

Once you’re ready to receive funding from investors, having a reliable financial setup makes it far easier to receive, manage, and move funds, especially when raising capital from international investors.

💡 Explore: how to value a business

Simplify local and global funding transfers with Wise Business

With a Wise Business account, you can hold and exchange 40+ in one place and send payments to 140+.

Opening a Wise Business account for , means you’ll get access to:

• International payments at the mid-market exchange rate
• One account built to manage multiple currencies
• Local account details in major currencies so that you can get paid like a local business (only with Wise Business Advanced)
• Holding and exchanging over 40+ currencies

Opening a Wise Business account is easy and fully online, with a simple verification and onboarding process. You can review the requirements and get started in just a few steps.

*Disclaimer: The UK Wise Business pricing structure is changing with effect from 26/11/2025 date. Receiving money, direct debits and getting paid features are not available with the Essential Plan which you can open for free. Pay a one-time set up fee of £50 to unlock Advanced features including account details to receive payments in 22+ currencies or 8+ currencies for non-swift payments. You’ll also get access to our invoice generating tool, payment links, QuickPay QR codes and the ability to set up direct debits all within one account. Please check our website for the latest pricing information.

Register for Wise Business 💼

Frequently asked questions

Here are some frequently asked questions on pre-money vs post-money valuation:

Can a high valuation hurt my startup in future funding rounds?

Yes. An inflated valuation can make it harder to raise your next round if growth doesn’t keep pace, increasing the risk of a down round.

How do investors decide if a startup’s valuation is fair?

Investors look at factors such as traction, revenue growth, market size, team experience, and comparable startups. They also consider market conditions and risk to determine whether the valuation aligns with potential returns.